In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation

RBC Capital Markets

AUD is outperforming in moderately risk-on markets overnight. The pace of increase of reported Coronavirus cases continued to slow over the weekend, with the rate of daily increase falling to 8% from 10-20% over the last week. Heading into tomorrow’s New Hampshire primaries, the bookies’ implied probability of the Democrats winning the presidential election has fallen to a new low of 38%. Saturday’s Irish election resulted in a tight three-way split between the main parties and formation of a government will likely take weeks or longer. China’s January CPI came in at 5.4% y/y (consensus 4.9% y/y). Canada’s January housing starts (see CAD) are due today in what is otherwise a fairly quiet day for data (see table below).

Week ahead: There is relatively little data due through the course of the week, but plenty of event risk for markets to focus on. The RBNZ and Riksbank announce rates on Wednesday (both expected unchanged). Fed Chair Powell gives his semi-annual testimonies (Tuesday and Wednesday). Given that the Fed meeting was held less than two weeks ago, we expect his tone on the fundamentals of the economic backdrop to remain little changed, i.e., growth looks solid and inflation is expected to trend toward the 2% target. Although Powell will likely continue to articulate some uncertainty with regard to this risk, he will probably lean more toward characterising this as a transitory phenomenon. New Hampshire primaries (tomorrow) will be the other main focus in the US.

GBP: December and Q4 GDP data (tomorrow) are the last of the pre-election activity indicators and, as such, will have relatively little bearing on policy as attention remains focused on the strength of the rebound in activity as electoral uncertainty lifted.

JPY: Capital flows in December were quite neutral overall, but today’s detailed bond flows data show Japanese investors continued to sell Europe and buy USTs.

NOK: Today’s January CPI data are expected to show the underlying rate picking up slightly (1.9% y/y from 1.8%), but the trend would be unchanged, with underlying inflation having peaked in mid-2019.

SEK: The Riksbank is universally expected to leave rates unchanged on Wednesday and attention will focus on the outlook for rates in the MPR. At the time of the last MPR, the projections showed rates flat at zero this year and next.

TRY: On Sunday, the BDDK (Turkish banking regulator) lowered the amount of FX swap and other derivative transactions that local banks can engage in with non-residents from 25% to 10% of banks' equity. This rule applies only to transactions where the local "banks receive TL at the maturity date" and thereby aims to limit offshore TRY liquidity and arrest a further decline in TRY.

CAD: A week of housing data kicks off with January housing starts, where we expect to see a 210K annualized print after 197.3K in December. The latter took the Q4 average to 201.3K after about 220K in each of Q2 and Q3. Building permits have slowed as well, but at a 225K annualized pace in the last 3m (to November; December data out same day as starts) still point to some improvement in actual starts. So does continued tightening in demand-supply conditions in the re-sale market, especially in Toronto and, more recently, in Vancouver. Indeed, some slowing in unit re-sales of late appears more tied to a lack of supply rather than to diminished demand, as benchmark price growth continues to improve outside energy-dependent regions.

Citi

Coronavirus concerns fluctuate.

The Asia open saw risk turn lower as the market digested news over the weekend of the death count topping 900, making the coronavirus outbreak worse than SARS. New cases also continued to be reported outside China, but we note that recoveries are accelerating. Market chatter in Asia quickly centred on stabilization in the growth rate of new cases in China, as well as background PBoC liquidity operations which have also supported market. We covered all you need to know on CitiFX

Looking briefly at price action in the Asia session, we saw EM FX weakness at the open, which has mostly been retraced. AUD, TRY and ZAR outperformance has been notable. Meanwhile, USDJPY has come off lows at the open of 109.60 to now trade at 109.80. Likewise, USDCNH has dipped away from 7.01 to now trade at 6.9910.

Despite marginal positivity at the moment, in the latest Monday Macro FiX we think that more caution is warranted in the near-term. Watch for impact on supply chains, including in earnings releases. CitiFX Technicals and Citi’s Equity Strategy are short-term bearish on risk appetite and equities.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

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